Bollinger bands

Bollinger bands: Definition and Much More from Answers.com:

"Bollinger Bands

Technical Analysis technique invented by John Bollinger that plots Standard Deviation levels above and below a moving average. This differs from a typical Momentum Oscillator, which plots fixed percentages above and below the moving average, creating 'envelopes' that represent the normal trading range of the security.

Since standard deviation measures Volatility, the Bollinger bands, typically based on a 20-day time span, expand and contract as the volatility of the price series changes. In volatile markets the bands widen and in calm markets they narrow. Both envelopes and Bollinger lines take their significance from the fact that prices normally stay within them and that when overzealous buyers and sellers push prices to the extremes they represent, reversals are likely to follow.

Steven B. Achelis, in his book Technical Analysis from A to Z, reports Mr. Bollinger's own interpretation of Bollinger bands: (1) sharp price changes tend to occur after the bands tighten, signifying less volatility; (2) when prices move outside the bands, a continuation of the current trend is implied; (3) bottoms and tops made outside the bands followed by bottoms and tops made inside the bands call for reversals in the trend; and (4) a move that originates at one band tends to go all the way to the other band, a useful observation when projecting price targets."